The Battle for Target

Target shareholder Pershing Square Capital Management and the retailer's board are lobbying shareholders hard over a proposal that would eject four legacy directors in favor of a Pershing-proferred slate of three outsiders and Pershing founder Bill Ackman.

Since taking a 7% stake in Target, the hedge fund company has made a number of suggestions about how to unlock more shareholder value — among them, a 2008 proposal that Target spin off its land holdings into a specialized type of REIT. The board declined. Ackman asked for a seat on the board. Target again declined.

Pershing has since spent some $15 million mounting a proxy battle for its slate, including a town hall meeting and web cast last week in Midtown Manhattan.

In the volley of letters sent to shareholders before and since the meeting, each side restates its case. Boiled down, it amounts to Pershing Square arguing, "This isn't about the real estate transaction," and Target responding, "Oh yes it is."

The battle is a timely one, coming as the country grapples with how much support is owed to financial institutions and other corporations that clearly screwed up and possibly/definitely (depending upon your point of view) deserve to collapse into the ashbin of history.

Target, of course, isn't in a financial mess. But the battle for Target raises a question that strikes at the foundations of modern commerce: Is it more important for a business to unlock the maximum value it can for shareholders using whatever tools and financial instruments that can be devised to do so, or is it more important for a business to tend to maximizing customer satisfaction and long-term growth? Is it possible to do both?

At last week's presentation in New York, Ackman made some good arguments. For instance, I could see how it might be wise for a company to off-load its credit portfolio risk to a third party that specializes in such things.

But he was dead wrong when he criticized Target for not jumping into the grocery business far earlier. It betrayed a lack of understanding about how Target managed to survive into the 21st century as the only healthy national discount chain to rival Bentonville.

Remember BigK and its Pantry concept?

One of Target's strengths has been that it doesn't play the little fat kid who goes chasing the big kid every time the latter jaunts off on an adventure. Doesn't mean Target is infallible. Maybe it should have planted its flag in Canada by now. Maybe it was crazily indifferent to specs during some of those famous shootouts.

Ackman makes a good case for fresh blood. Target makes a good case for sticking with a team that's done pretty well for the business.